Utility CEOs are updating Wall Street on eye-popping electricity demand growth numbers driven by an explosion of data centers. And investors and consumers alike are asking: What does it mean for them?
Columbus, Ohio-based American Electric Power said it sees 15 gigawatts of new demand across its utilities by 2030 — an increase of more than 40 percent, interim CEO Ben Fowke told analysts and investors last week. In northern Virginia, Dominion Energy said data center growth is accelerating by “orders of magnitude.” CEOs of other major utilities such as Duke Energy and Exelon reported similar sharp increases in power demand from data centers.
The numbers are music to the ears of utility executives and political leaders of both parties — hungry for jobs and economic growth that can help them win reelection. But fuzziness around the long-range numbers is inviting skepticism about how much growth will materialize, and consumer groups are wary about the impact on consumers, many of whom have seen electric bills rise at an increasing pace over the last three years.
Paul Patterson, a utility analyst at Glenrock Associates, said how much of the staggering demand numbers being floated is hyperbole versus reality “remains to be seen.”
“We’ll see two years from now whether or not everybody’s talking about it,” he said.
The buzz, Patterson said, is reminiscent of the fervor over internet-related power demand a quarter-century ago when Forbes magazine published an article wildly overstating the impact of the internet on the grid. When Lawrence Berkeley National Laboratory crunched the numbers, researchers concluded the author overstated the impact of internet-related electricity use by a factor of eight.
There’s good reason for utility CEOs to be excited by the potential of big new data centers that consume lots of power: They will require more power plants and wires; massive new infrastructure investments on which companies earn a profit.
But the promise of big new sources of demand also brings risks for consumers who would be on the hook for those investments if the new demand doesn’t show up.
“Utilities could overbuild system capacity for load that never materializes or that serves the new load for a period of time that is shorter than the useful life of the new power asset,” Moody’s Investors Service said in a recent research report. If that happens, “some of the infrastructure costs incurred to serve this expected demand could be socialized to other customers.”
That risk is magnified because utility customers are already facing steep bill increases in many parts of the country.
“We’ve got rate cases right now where you’re looking at typical residential customer bills going up around in the neighborhood of 30 percent from 2022 to 2026,” said Tom Content, executive director of the Citizens Utility Board of Wisconsin, a consumer advocacy group. And that’s before adding in the cost of any new infrastructure related to data centers.
President Joe Biden traveled to Wisconsin in May to join Gov. Tony Evers (D) and Microsoft officials in announcing a $3.3 billion data center to be built by 2026 to expand cloud computing and AI capacity. Microsoft’s data center will be built at the site of what was supposed to be a mammoth Foxconn flat-screen TV factory that never materialized.
Microsoft has pledged to pay its fair share for assets needed to serve the facility, including a new 250-megawatt solar project in Wisconsin. However, under a state law enacted to help Foxconn, Microsoft is guaranteed a discount of market-based electric rates.
Utility executives insist that the new large sources of power demand can be a good thing for consumers. Increased sales to data centers can broaden the base of customers who share a utility’s fixed costs, reducing the cost per unit of energy.
Is adding load good for consumers?
But putting theory into practice is another thing.
“We’ve heard for years that adding load, adding customers, ultimately brings down rates for other customers,” said Kerwin Olson, executive director of the Citizens Action Coalition, an environmental and consumer advocate in Indiana. “But we’ve never actually seen that come true.”
In Indiana, utility NIPSCO said during a June meeting with state regulators that peak load could almost quadruple by 2035, with most of the growth from data centers. Although not all of those may come to fruition, the utility said it has six “active” data center projects representing 8,600 MW of load by 2035.
American Electric Power’s Indiana Michigan Power utility is proposing tariff changes in Indiana meant to help protect the company and existing utility consumers from the risks they present. The changes are similar to those proposed by AEP in its home state of Ohio earlier in the year.
In a regulatory filing last month, Fort Wayne, Indiana-based Indiana Michigan Power said the changes sought would provide the company with the confidence needed to invest in grid improvements and “reasonable financial protections should future conditions arise that impact the operations of a customer’s facility and reduce the level of electric demand.”
The utility said it’s in discussions with so-called hyperscalers — trillion-dollar tech companies such as Google, Amazon and Microsoft — and other potential data center customers that would almost triple peak demand from 2,800 MW to 7,000 MW by the end of the decade.
Discussions of the data center boom, in part spurred by state and local tax incentives aimed at recruiting the industry to Indiana, raise numerous questions about the state’s energy future, including efforts to continue moving away from a reliance on coal.
For consumers, advocates such as the Citizens Action Coalition want to see utilities move carefully and embrace smaller, cleaner solutions to new demand, including distributed energy, energy efficiency and demand response, before rushing to build large new power plants.
“We have concerns that we’re going to potentially give utilities a blank check to build a lot of expensive stuff that we really don’t need,” Olson said.
